Bubble-Up Money: Further Thoughts on Piketty’s Capital

Money bubbles up. But not in the way liberal and progressive policy planners might have hoped. This is one of the indirect lessons of Piketty’s book, Capital in the Twenty-First Century. Though the theory is not new, for the first time we’ve been presented with apparently hard evidence of the tendency for wealth to be concentrated into fewer and fewer hands, even in a “well-functioning” economy.

Back in the days of Reagan-era “trickle down” theories of economic redistribution via tax cuts for the wealthy, some on the left touted a “bubble up” approach in response. Instead of spending on the rich and hoping money makes its way to the rest of society through job creation and better wages, tax benefits and social welfare programs spent on the more vulnerable might help all through greater productivity and increased consumption. A healthier, happier, better-educated, and socially-supported worker and a more motivated consumer would translate into greater returns for employers. A portion of the money spent at the bottom, so to speak, would make its way to the top. Everyone would win, the story went.

Unfortunately, Piketty’s work suggests that, wherever it is spent, not just a portion but the majority of money rises to the top. Money has an inclination to slip out of the hands of the many and return to the few. While it certainly doesn’t trickle down, money’s bubble-up tendency means that its presence among and benefit to those who have less of it are fleeting. Money appears to want to come back to its origins among those who already hold it in greater supply. The old adage that “it takes money to make money” rings true here on a broader social scale: those small sectors that have it in abundance will continue to make more.

In today's world, wealth’s increase is largely generated through monetary instruments. The rate of return on capital, Piketty claims, always exceeds the rate of growth through production and income (his now famous formula r > g). Interest rates (public and private debt) and other monetary mechanisms are the driving force behind skyrocketing capital returns. He calls this capital growth rate “arbitrary.” And this is right, since interest rates are socially and politically determined. They are not subject to some natural or physical law.

Paying attention to the origins, nature, and function of money as a medium reveals at least two factors that help explain the dynamic illustrated by Piketty:

The first is that money is created through lending and indicates a credit-debt relationship.

The second is that money is politically instituted and is set into play and regulated by centralized authorities.

If money is generated through debt creation (this is how banks make money), it makes sense that a portion of it will return to its places of origin in the form of interest.

Regardless of the amount or location of money in circulation, it accumulates to the lender. If governments establish fiscal policy in cooperation with financial institutions and the wealthy elite who direct them, it makes sense that monetary circuits work in their favor. Laws work ultimately to facilitate money’s return to the pools of wealth that put money into motion in the first place.

As dramatic and “utopian” as Piketty’s proposal for a progressive global tax on the most wealthy appears, it may be at best a short-term and stopgap intervention. Other proposals, such as Joseph Stiglitz's, may be too optimistic about the capacity for capitalism to correct inequalities. Redirecting money away from centers of wealth will work for a time until it finds its way back, through the endless innovation of monetary instruments and the laws that are always a few steps behind. Money wants to bubble up, and the self-correction and “equilibrium” toward which markets tend is that of money’s concentration at the top.

Devin Singh is Assistant Professor of Religion at Dartmouth College, where he teaches courses on religion and economics, modern religious thought, and philosophy of religion. His current book project examines the relation between money and Christian doctrine and considers how theology shapes economy in the West.